Benefits Earned: The Five Tests for VA Pension
By Zach Bloxham, J.D
Between clients, cases, and caseworkers, it had been a trying day. The last appointment was scheduled as somewhat of a throwaway—a potential client who desired a visit but who, for reasons unknown, was unable to complete the initial intake typically required to secure such a face-to-face meeting. I arrived at the assisted living facility fatigued from the day’s efforts and more than a little perturbed by the traffic, which seemed unceasing as I approached my destination.
I exited my vehicle, spoke to the front desk staff, acquired the room number of my would-be client, and marched down the hall for what I hoped was a quick visit. An older gentleman, fitted with the yellow-stitched Veterans hat often conspicuous at these institutions, opened the door with a smile. I returned the favor, hoping to hide my self-pity as he invited me to sit and chat. After brief introductions, I explained that I might be able to assist him in qualifying for some Veterans Affairs (VA) benefits. I asked about his service. He demurred. I pressed, informing him that I needed to know the specific dates of service to ensure he could qualify.
“Guadalcanal, age 18,” was the response. As a student of history, I knew it was one of the fiercest battles of the Second World War. As a VA-accredited attorney, I was sure my new client could qualify for benefits. As a grateful American, I was honored to make the acquaintance of someone who had given so much for our country at such a young age. As for those everyday annoyances that were at the front of my mind? They all but disappeared in the presence of someone who had experienced real strife and deprivation in the service of another. And now, I had the chance to redeem my initial feelings of gloom and provide him with the best legal strategies I could offer.
Assisting Veterans and their spouses in planning for long-term care is one of the most professionally rewarding and emotionally satisfying experiences the practice of law can provide. This article, the first in a two-part series on VA pension planning, introduces the five tests a claimant must meet to attain VA eligibility. A second article to be published in the next issue of the WealthCounsel Quarterly will explore the Veterans Asset Protection Trust and how its unique form and structure can be a boon to Veterans and their spouses as they plan for the future, particularly with regard to their primary residence.
The Five Tests for VA Pension
The quantity of VA programs can be difficult to itemize and even more onerous to understand. Each benefit has its own purpose and eligibility criteria. This can lead practitioners to stick with what they know and ignore the helpful information that is readily available to them. Some of the programs, such as Dependency Compensation, are not means-tested. Others, such as VA Pension, have strict limitations that, if not met, will be a bar to a successful application. As such, the rules governing specific programs within the VA umbrella of benefits are distinct.
To qualify for VA pension benefits, a claimant must successfully navigate five inquiries: service, medical, income, asset, and transfer. Failure to satisfy one of these will cause the application to fail as a whole. Failure to meet some criteria can be overcome with proper planning; however, other failures are fatal to the claim, and no remedial measures are available.
1. Service Test
While all VA benefits have some level of service component to the analysis, VA Pension has a specific service regime that individual claimants must meet to garner eligibility. To meet the service requirement, a claimant must pass a three-pronged analysis:
the Veteran must have been discharged in circumstances other than dishonorable,[1]
the Veteran must have served at least 90 days[2] of active-duty service, and
the Veteran must have served at least one day of active service during a Congressionally-defined wartime period.[3]
Veterans, spouses, family members, and even attorneys often prejudice potential claims by mistakenly assuming additional restrictions on the service test that do not exist in VA rules or regulations. For example, a Veteran’s discharge need not be explicitly specified as honorable. An alternative discharge, such as other or general, is sufficient to meet the standard. The prohibition is on a discharge that is dishonorable.
Additionally, the applicable wartime periods as defined by Congress do not parallel the dates of active hostility. This can lead to misunderstanding by potential claimants, who may believe that the Veteran must have either seen combat or have had boots on the ground to qualify. While the latter may be required for a small segment of Vietnam-era Veterans, the general rule is that the Veteran does not need to have been in theater to meet the service test for VA Pension.
A client of mine served as a Military Policeman in Germany, arriving there months after the war in Europe had officially ended. For VA Pension eligibility, the applicable wartime period for World War II begins with Pearl Harbor and runs until the last day of 1946, thus allowing my client to meet the standard. Additionally, many Veterans served stateside or in other areas far from where their life was in danger. They nevertheless qualify under the service test, as the standard is based on the quantity of days served (at least 90) and when those days transpired (during a wartime period).
2. Medical Test
A claimant can meet the basic pension requirements for the medical test by being aged 65 or older. The VA presumes that a claimant aged 65 or older is disabled for purposes of the benefit program. This might come as a shock to your client, but it also works to their benefit. Additional monthly pension benefits—Housebound and Aid and Attendance—are available to claimants with other health struggles. The latter is where practitioners should typically, rightly, spend their time to ensure the claimant can receive the highest award under the law.
To meet the medical test for Pension with Aid and Attendance, a typical claimant must be above age 65 and meet certain presumptions related to health status; namely, they must be blind or nearly so, a patient in a nursing home, or need the assistance of another person for the activities of daily living (ADLs). The ADLs considered in determining a Veteran’s eligibility for Aid and Attendance are outlined in the applicable regulations and include eating, bathing, dressing, toileting, and prosthetic adjustment, or protection from hazards incident to the Veteran’s daily environment due to mental or physical incapacity that requires care on a regular basis.[4]
It is important to note that the medical test is not so binary as to make it difficult to ascertain. The regulation expressly states that a claimant is “not required” to demonstrate “all of the disabling conditions” outlined.[5] The medical test is a query about the claimant’s “condition as a whole.”[6] It is only necessary to establish that the claimant is “so helpless as to need regular aid and attendance, not that there be a constant need.”[7]
This frees the attorney to think expansively regarding the medical test. One day, a client discussed his desire to seek Veterans benefits. Based on his appearance, I did not think he could qualify medically. Pursuing due diligence, I asked the client to move forward with preparations. He and his doctor filled out the required VA medical form[8] and sent it back to me for review. To my surprise, the gentleman’s health status was more than sufficient to qualify. It was a collection of health issues, not just one, that was dispositive. A practical tip is to assume qualification until there is documentary evidence to the contrary.
Additionally, the attorney must properly review the documentary evidence when it is received to ensure that a realistic assessment is provided. One afternoon, I spoke to a client in my office who expressed a desire to seek VA benefits. He was not only feeble but weakened to a point where it was unsafe for him to stand for more than a few minutes at a time. You can imagine my surprise when I received the VA form from the client’s physician stating that the client golfed three times per week. Not wanting to discount the miraculous, I called the client to verify this statement. He informed me that he indeed goes golfing three times per week but does not take a single swing; he merely drives the golf cart and keeps score for his grandson. I laughed, requested the doctor resubmit the form, and was happy to see that the subsequent form was truer to reality.
3. Income Test
VA regulations require an application for pension benefits to be denied if the claimant’s attributable income exceeds the statutory income limit.[9] A claimant’s income includes payments of any kind from any source unless explicitly exempt.[10] Income for VA Purposes (IVAP) can be reduced by paying acceptable unreimbursed medical expenses (UMEs). UMEs are payments made by the claimant that are regular, recurring, and unreimbursed by any third party.
These UMEs are defined quite expansively,[11] encompassing care, medications, supplements, adaptive equipment, transportation expenses, insurance premiums, in-home caregiving, and expenses related to facility care such as in an assisted living, memory care, or nursing home facility. Long-term care costs can be used as a UME to reduce attributable income if the claimant is receiving nursing home care, custodial care at an assisted living facility, or similar care through in-home caregiving, as long as a medical professional recommends such care to provide the claimant with two activities of daily living or the assurance of a protective environment.
If a claimant’s IVAP exceeds the statutory income limit, or Maximum Annual Pension Rate (MAPR), then the claimant’s application will be denied. If the claimant’s IVAP can be reduced below the MAPR, minus a 5 percent deductible, the claimant will be eligible for benefits. For example, ignoring the 5 percent deductible calculation for simplicity, if Joe, a single Veteran, has an IVAP of $3,000 and $50 in UMEs, his IVAP is now $2,950. The MAPR for a single Veteran like Joe is $2,300 per month. Because Joe’s IVAP is above the MAPR, he is ineligible for a VA pension award. If, however, Joe’s IVAP was reduced to below the MAPR, he would be eligible for a dollar-for-dollar award up to the maximum annual pension amount. A negative IVAP will entitle the claimant to the maximum award but does not grant the claimant an award above the maximum annual pension amount.
The VA Pension program is designed to reimburse claimants whose incomes are being swallowed up by the punishing costs of long-term care. Therefore, it is incumbent on the claimant to actually incur costs at a facility or at home prior to seeking the benefit. Having heard about the long wait times for VA pension claims, claimants mistakenly believe they can apply for pension benefits and then move into the long-term care facility after they are approved. The benefit does not work that way in practice.
The best approach is to begin compiling the necessary application documents as soon as possible. If the claimant is otherwise eligible and meets the income test because of long-term care costs but does not have the application paperwork complete, the attorney should submit an intent to file to the VA to lock in an effective date.[12] If costs are not yet being incurred, the attorney should still begin putting together the necessary paperwork to ensure that when long-term care costs begin to be incurred, the client can move forward with the application. Once approved, the VA will look to when the Veteran was otherwise eligible and submitted an intent to file a claim, i.e., retroactively to the effective date of the claim, to ensure that the claimant does not miss out on any benefits for which they were eligible while the application was pending adjudication.
4. Asset Test
The VA implemented a bright-line asset test known as a net worth limit[13] in 2018. This limit increases every year by the same percentage that the Social Security Administration increases benefits to account for the rising cost of living.[14] For 2024, the net worth limit is $155,356. If a claimant has assets above the limit, they are ineligible for the VA pension benefit. VA rules do not distinguish between a Veteran and a Veteran’s spouse for purposes of the net worth limit, meaning that assets held by each will count toward the asset test. Additionally, resources from dependents who live in the same household may count toward the limit.
An important factor in assessing the asset test is to define what the VA considers an asset. A covered asset—a VA term of art with a defined term—is an asset that was part of the claimant’s net worth, was transferred for less than fair market value, and, if not transferred, would have caused, or partially caused, the asset test to be exceeded.[15]
Net worth includes all property that an individual owns, including real and personal property, unless excluded, less the amount of encumbrance. Similar to long-term-care Medicaid eligibility criteria, a primary residence, vehicle, and personal property are exempt from the initial and continuing VA eligibility determination. However, important distinctions within the VA rules must be understood to provide the best counsel to potential claimants. For example, the VA exempts a primary residence regardless of value but limits the lot size to two acres. This means a residence may be exempt from VA while not being exempt from Medicaid—and vice versa.
The primary residence is not a covered asset for purposes of pension entitlement unless sold before a claim for benefits is approved, or, if sold after, the proceeds are not used to purchase another primary residence within the same calendar year. This rule can lead to difficult circumstances if the home is sold in November or December. It is incumbent upon the attorney to properly counsel clients seeking VA pension benefits while selling their primary residence.
The covered versus noncovered asset regime becomes even more complex when combined with the final test a claimant must meet: the unique VA transfer of asset rules.
5. Transfer Test
Federal regulations prohibit a claimant from transferring assets for less than fair market value in the three years preceding the date the VA receives an original or new claim. This three-year look-back on asset transfers works in tandem with the asset test, ensuring that an individual cannot be ineligible for being over the asset limit on a Monday, transfer all of their assets to a friend on a Tuesday, and be eligible for benefits on Wednesday.
The VA has a penalty divisor of $2,727,[16] meaning if $20,000 were gifted, the claimant would be ineligible for seven months of benefits, as VA transfer penalties are rounded down. This penalty divisor is the same for all pension claimants, whether a single Veteran, surviving spouse, or married claimant. While a consistent penalty divisor provides a better outcome for the single Veteran and surviving spouse claimant, the value of the penalty divisor, particularly when compared to that of Medicaid, is vanishingly low, thereby imposing an even more burdensome regulatory penalty on Veterans and spouses.
Perhaps the linchpin to all VA pension planning as it relates to the asset and transfer tests is the dual foundational planning implications unique to the VA rules, namely that a noncovered asset may be transferred without regard to the transfer of asset restriction, and if the claimant’s assets are below the asset limit, those assets can be transferred without regard to the transfer of asset restriction. These two realities, giving the Veteran and spouse a large degree of flexibility in the rules, are distinct and give attorneys multiple options in assisting claimants in planning for pension benefits.
To reiterate, a noncovered asset such as a primary residence is not subject to the transfer of asset restriction. The home is likely the most valuable asset, monetarily and in memory, that a claimant has. This unique regulatory carve-out provides the claimant with a slew of options ranging from outright gifting (not recommended) to utilizing a specialized instrument such as the Veterans Asset Protection Trust to protect from the adverse effects of gifting while planning for the asset the claimant cares most about and maintaining eligibility for benefits. This is the subject of part two of this article.
Additionally, as it relates to assets below the limit, assume a claimant had $100,000 in cash and no other assets of value. Because the $100,000 in cash is below the net worth limit of $155,356, the $100,000 is not subject to the transfer of asset restriction and may be gifted without penalty. In both cases, a transfer of an exempt asset (the primary residence) and assets under the asset limit ($100,000) are compliant within the structure of the VA rules, although parallel transfers of the primary residence and assets under the applicable asset limit would be prohibited under the Medicaid regime.
Conclusion
As the necessity for long-term care increases and the costs for such care continue to rise, there is a greater and more pronounced need for attorneys to assist wartime Veterans and spouses with claims for benefits. VA Pension with Aid and Attendance is a foundational program for those who need another person’s assistance and whose livelihoods—physically, mentally, emotionally, and financially—are at risk. A claimant who is seeking benefits under the VA Pension rules must meet and pass service, medical, income, asset, and transfer tests. An attorney who understands these rules—and the planning strategies we will discuss in part two of this article—can, in a very real sense, be the difference between a Veteran and a spouse qualifying for the benefits they so desperately need and have so valiantly earned and having those benefits fall by the wayside without a beneficiary to receive them.
[1] Definitions, 38 C.F.R. § 3.1, https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFRf5fe31f49d4f511/section-3.1.
[2] M21-1, pt. III, subpart ii, ch. 6d; Benefit eligibility based on character of discharge, 38 C.F.R. § 3.12, https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFRf5fe31f49d4f511/section-3.12. If service began after September 7, 1980, additional length of service may apply—usually two years of continuous service or the completion of the full service obligation if less than two years.
[3] Periods of war, 38 C.F.R. § 3.2, https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFRf5fe31f49d4f511/section-3.2. World War II (December 7, 1941↿–December 31, 1946); Korean War (June 27, 1950–January 31, 1955); Vietnam War (February 28, 1961–May 7, 1975 for those who served in the Republic of Vietnam; August 5, 1964–May 7, 1975 for everyone else); Gulf War (August 2, 1990–future date set by law).
[4] Criteria for determining need for aid and attendance and “permanently bedridden,” 38 C.F.R. § 3.352, https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFR6477ad08d327384/section-3.352.
[5] Id.
[6] Id.
[7] Id. at § 3.352(a).
[8] VA Form 21-2680, Examination for Housebound Status or Permanent Need for Regular Aid and Attendance, https://www.vba.va.gov/pubs/forms/VBA-21-2680-ARE.pdf.
[9] M21-1 IX.i.3.A.1.a.
[10] Computation of income, 38 C.F.R. § 3.271(a), https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFR093085c1bf84bc2/section-3.271.
[11] Deductible medical expenses, 38 C.F.R. § 3.278, https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFR093085c1bf84bc2/section-3.278.
[12] See U.S. Dep’t of Veterans Affairs, Your intent to file a VA claim, https://www.va.gov/resources/your-intent-to-file-a-va-claim/ (last visited June 27, 2024).
[13] Net worth and VA pension, 38 C.F.R. § 3.274, https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFR093085c1bf84bc2/section-3.274.
[14] Id.
[15] Asset transfers and penalty periods, 38 C.F.R. § 3.276(a)(2), https://www.ecfr.gov/current/title-38/chapter-I/part-3/subpart-A/subject-group-ECFR093085c1bf84bc2/section-3.276.
[16] Id. at § 3.276(e)(1).